July 2015 Market Commentary

In July, we continued to see disparity between some of the major equity indices. The Dow Jones was positive 0.40% for the month but is negative 0.75% for the year. The S&P 500 is higher by 1.97% for July, but the year’s return is only 2.18%. The Nasdaq Composite has been overall the most positive, and this has mainly been due to APPL and other technology companies. The Composite was higher by 2.84% for the month and 8.28% for the year. Most money managers and hedge funds are flat to slightly down on the year, and the highest quality energy names and companies with significant dividends is where we take comfort. While this summer has offered a lot of volatility and anxiety, it is in these times that we believe we are able to spot value. The following article by Reuters illustrates quite well how the big winners of the market this year have been confined to a very narrow industry bandwidth: 

A few big winners keep U.S. stock market afloat in 2015
4:03 PM Eastern Daylight Time Jul 24, 2015
July 24 (Reuters) - Amazon's stock price surge into Friday made it the latest of a series of companies to boom following results, and its performance this year, along with a few others, has basically kept the S&P 500 above water. Data from S&P Dow Jones Indices shows that the gains in Amazon <AMZN.O>, Facebook <FB.O>, Google <GOOGL.O> and Netflix <NFLX.O> account for more than 50 percent of the broad S&P 500's rise of just over 1 percent so far in 2015. Add in Apple <AAPL.O>, and those five companies account for nearly 60 percent of the year's gains, according to S&P index analyst Howard Silverblatt.

     
The month of August will most definitely present great buying opportunities and a chance to begin deploying cash. Oil will definitely be part of that investment allocation as well as other great companies that pay dividends and are oversold. We have intentionally built significant cash positions in our clients’ portfolios for exactly these types of buying opportunities. There has recently been a lot of negative price speculation as it relates to oil and natural gas that is not consistent with the world’s true demand.  Make no mistake: with all the people in China, India, and Russia, the global demand for oil and natural gas is huge and only growing larger. The current mispricing of these commodities is the result of political brinksmanship on the part of OPEC. Our firm is only too happy to steal XOM, CVX, and SLB at these prices. 

Finally, there are many market pundits going into the fall that believe the Fed’s raising of interest rates will be the great undoing of the market. In our opinion, they are wrong. There may be some short term trading, but overall, this interest rate hike is already priced into the market. We think the markets would react worse to a zero raise scenario that is attributed to the recent devaluation of the Chinese Yuan. Underlying credit worthiness of sovereign currencies seems like a much scarier prospect to the capital markets than the FOMC raising rates 25 or 50 bps. Finally, American companies have done a good job to report pretty good results in the face of rising regulatory costs and the strong dollar. Therefore, it is our opinion that America will still continue to experience painfully slow growth by growing GDP between 2-3% maximum for the rest of the year. 

A.G. Campbell Advisory, LLC

Mark Scott

A.G. Campbell Advisory, LLC, 1340 Smith Avenue, Suite 200, Baltimore, MD 21209